Wednesday, 22 February 2017

Brazilian Real 2017-2020


Fortunately I don’t have the same blindspot with the Real as I do with Brazil itself and as I predicted the Real had a good 2016. So good it has even strengthened after the dollar rally (though it did experience a short fall in November). The currency is now back at its 2014 levels, but with so much potential change in the country where will it go next.
January and February 2017 have so far been moderately positive for the currency. There is certainly enough momentum to keep this going for the rest of February though we are not looking for any significant further gain.
March to May is likely to be a more volatile phase. Overall I would expect little trend, but there may be a risk of some sharp falls in the currency’s value due to unexpected news.
June to August becomes more moderate again. If anything we could expect some surprising news on the upside. But generally it is less volatile and the trend more positive.
September and October is rather mixed though not especially volatile. On balance this suggests that the currency will tread water. The only exception is the right at the end of the period which is vulnerable to short term falls.
November and December are for the most part positive and may well be the best period for the currency once the first half of November has passed.
I’d expect global focus on the currency now as a key turning point is reached.
January and February 2018 are however more difficult months. There is pressure on the currency and falls are distinctly likely although there is perhaps some relief in terms of expectations.
March to May is a bit mixed, and have some indicators that reflect the previous June- August. A difficult period to call and may be characterise once again by big swings as the short term indicators are actually positive whele the longer terms ones are harsher.
June to August is a period of drama for the currency. Shades of the early part of the year return and are even more extreme now as there are some shocks. The period may well see another key longer term reversal.
September and October are much like June to August, there is still a lot of pressure on the currency and concern for investors.  However it is not all negative and one again it is likely that positive expectation will overcome much of the negativity. If there is a trend it should be down but the offset from this positive expectation might lead to the currency being flat over the 2 months.
November and December see a return to the more intense conditions and with major shocks and restrictions this could be a difficult time. There are positives to be found so we are not looking at a straightforward downward trend but it’s not great either.
January and February 2019  are mixed and in many ways a continuation of 2018, but there is a glimmer of light as some of the heavier indicators reduce to be replaced by some more supportive ones. The only question is whether the conditions now may be significantly inflationary, in which case further falls are likely, but these are likely to be inflation driven rather than event driven.
March to June is a very mixed period, There are a lot of offsetting factors which should, on balance, make the currency’s value  relatively flat at this time. Nevertheless there are some indictors of further shocks which might cause outbreaks of volatility again.
July to September sees elements of volatility continue but there are moderated by the surrounding conditions. This is a time of little direction and small shifts rather than big trends or even significant swings.
October and November are milder months all round. This looks like a positive phase for the currency though mega gains are unlikely,
December continues the mood of November but perhaps with some restriction on the amount of trade due to international events. The effect is probably to dampen the trend down as traders wait to see what 2020 will bring.
And, in fact, the whole of 2020 may be rather volatile.
January and February  are not particularly so, however, especially when compared with elsewhere.
On balance this looks a good time for the Real but not an especially noteworthy one.
March to July, however, is noteworthy. Volatility reaches a peak. It is difficult to detect a discernible trend at this time as there is so much happening.  Once again there are some indications of inflationary pressures and the possibility that a one off devaluation is proposed.
August and September see the general themes continuing but it is a more moderated phase than the previous 5 months.
October and November, however, sees a return to the drama and definitely indications that we might be looking at a new level or, indeed, structure for the currency. But this is still in the making.
It is not till the end of December that we will really see the new picture emerging and a consequent big shift in value before the start of 2021.

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